Anyone who has studied this debate knows that this summary bears no relation at all to what was actually argued over. Piketty seems like a smart, open-minded guy, so I would have to assume that he hasn’t read the original documents; his take must have been formed by what he was told in grad school. If so, this passage can be read as a reflection of how the Two Cambridges battle has been turned into official history. That’s a discouraging thought.

Confusing money (accounting entries) with money things, like cash. Again, generalizing from a special case and a limited one at that.

The fact is that a loan does not have to a loan of anything. Some loans can easily be treated as being a loan of something, such as a loan of a car. But dollar loans are not in general a loan of something, even if we feel a desperate urge to think of them as such. They are in fact just bilateral agreements to procure accounting entries.For many purposes, it is fine to think of dollar loans as being loans of money. But we should be careful not to fool ourselves into thinking that is what they actually are, because we need to understand how things work when that interpretation no longer fits.

When a bank makes a loan and credits a deposit account, it undertakes an obligation to settle in accordance with customer's wishes, by either furnishing cash at the window or clearing a draft on the customer's account, which the bank does either through intra- or inter-bank netting accounts or in the official payments system, as appropriate. Most of these transactions simply involve marking up one account and marking down another account in the accounts of both parties to the transaction.

Money is not only created "out of thin air," but it is also exchanged in thin air.

If there was one word I'd use to sum up the structure of Capital, it's "careful." Piketty is offering up an inflammatory thesis (more on that in a minute), but his presentation is almost plodding. He retraces and reiterates his arguments again and again, which is helpful for those of us who don't trade in economics in our daily lives, and also is set to head off lazy critics who want to dismiss him out of hand. Indeed, one of the most entertaining episodes in the debate so far has been The Financial Times affair, where the FT's Chris Giles pointed out a bunch of "errors" in Piketty's work, only to have the normally even-keeled Piketty come back with a long, detailed rebuttal that boiled down to "Hey, asshole, if you'd bothered to look, you'd see that I documented every one of the decisions you're characterizing as an error, and if you want to disagree with me, then argue with my explicit, detailed assumptions instead of sloppily assuming I didn't even realize I was making them."

☺

The reason for capitalism is that it is supposed to allocate reward based on "merit" -- it is supposed to move capital into the hands of the people who can do the most with it -- and if all our policy decisions are made in service to a class of supermanagers whose wealth comes from squatting on a fortune managed by some green-eyeshade quants who grow it without its owner ever doing a notable thing apart from being born to dynasty, there is no more reason for capitalism. Piketty darkly hints that the last time this happened, the world tore itself to pieces, twice, in an orgy of destruction that left millions dead and whole nations in ruin.…

Doctorow zeroes in on the weakness in Piketty's analysis as pointed out by Suresh Naidu.

There have been a number of critcisms leveled at Piketty since the English translation of Capital, and, like the Financial Times broadside, most of these have been unserious -- coming from people who clearly haven't read the book carefully enough. But there's one criticism I have a lot of time for: Suresh Naidu's critique of the politics of Piketty's analysis. Piketty treats the rate of return on capital as largely financial, while Naidu argues (convincingly) that it's political. The rules of property and the willingness of the state to support those rules through everything from guard labor to anti-default/anti-inflationary policies are political decisions, not laws of nature, and they are the crux of the rate of return.…

Inequality is the result of politics and institutional arrangements not economic "laws." Capitalism is not so much an economic system and a complex institution based in law and institutional arrangements. The outcome is the result of distribution of power rather than the operation of markets.

James Risen reports for the NYT that before a group of Blackwater (now known as Academi) security contractors slaughtered 17 Iraqi civilians in Baghdad, the State Department launched an investigation into the firm’s activities in Iraq, but the probe hit a dead end when Blackwater’s top manager in Iraq said “‘he could kill’ the government’s chief investigator and ‘no one could or would do anything about it as we were in Iraq.’”

What does the United States have a military for, on which it spends more than the world combined when paramilitary and intelligence (black ops) is thrown in. This is really over the top.

Schwarzman isn’t alone. In the past year, the venture capitalist Tom Perkins and Kenneth Langone, the co-founder of Home Depot, both compared populist attacks on the wealthy to the Nazis’ attacks on the Jews. All three eventually apologized, but the basic sentiment is surprisingly common. Although the Obama years have been boom times for America’s super-rich—recent work by the economists Emmanuel Saez and Thomas Piketty showed that ninety-five per cent of income gains in the first three years of the recovery went to the top one per cent—a lot of them believe that they’re a persecuted minority. As Mark Mizruchi, a sociologist at the University of Michigan and the author of a book called “The Fracturing of the American Corporate Elite,” told me, “These guys think, We’re the job creators, we keep the markets running, and yet the public doesn’t like us. How can that be?” Business leaders were upset at the criticism that followed the financial crisis and, for many of them, it’s an article of faith that people succeed or fail because that’s what they deserve. Schwarzman recently said that Americans “always like to blame somebody other than themselves for a failure.” If you believe that net worth is a reflection of merit, then any attempt to curb inequality looks unfair.…

If today’s corporate kvetchers are more concerned with the state of their egos than with the state of the nation, it’s in part because their own fortunes aren’t tied to those of the nation the way they once were. In the postwar years, American companies depended largely on American consumers. Globalization has changed that—foreign sales account for almost half the revenue of the S&P 500—as has the rise of financial services (where the most important clients are the wealthy and other corporations). The well-being of the American middle class just doesn’t matter as much to companies’ bottom lines. And there’s another change. Early in the past century, there was a true socialist movement in the United States, and in the postwar years the Soviet Union seemed to offer the possibility of a meaningful alternative to capitalism. Small wonder that the tycoons of those days were so eager to channel populist agitation into reform. Today, by contrast, corporate chieftains have little to fear, other than mildly higher taxes and the complaints of people who have read Thomas Piketty. Moguls complain about their feelings because that’s all anyone can really threaten.

The Bank of International Settlements published its – 84th BIS Annual Report, 2013/2014 – yesterday (June 29, 2014). Their message is that governments (particularly central banks) have been too focused on reducing short-term output and employment losses at the expense of a long-term focus on the financial cycle, the latter, which is in their view, essential to restore “sustainable and balanced growth”. I beg to disagree.

The BIS gained a lot of headlines in the last 24 hours from reporters who don’t seem to be able to cut through the sophistry. The basic claims by the BIS in this Annual Report have been put out by them over the last few years. Nothing very new and while there is some interesting and correct propositions in the Report, there is also a lot of incorrect surmise, which steers the policy debate in exactly the wrong direction.

The BIS Annual Report is quite technical but can be summarised relatively simply for a lay audience.…

Bill Mitchell – billy blogThe BIS remain part of the problemBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Pope Francis has accused communism of stealing its ideas from Christianity, and said its founding thinker Karl Marx “did not invent anything.”

Commenting on suggestions in the media that his world view is not dissimilar to communist ideology, the pope responded that it was the church that got there first.

“The communists have stolen our flag. The flag of the poor is Christian. The poor are at the heart of the Gospel,” he said in an interview published on Sunday.

He cited the Beatitudes, the opening verses of the Sermon on the Mount, as an example of where Christianity had influenced communism.

“The communists say that all this is communism. Yeah, right, twenty centuries later. So one can say to them: ‘but then you are Christian,’” the pope said while laughing, according to the interview in Rome daily Il Messaggero.

This is a response to an article by Nick Rowe, "Repeat after me: people cannot and do not 'spend' money", in which he states that banks lend reserves. As can be guessed from the title of my article, I disagree. But the difference in view is more nuanced than is suggested by the title. There is a good deal of disinformation spread about banking on the internet, so I think this is an important subject. Although this is fairly theoretical, it touches on the topic of the effectiveness of Quantitative Easing (spoiler: it isn't effective).

Bank reserves are settlement balance held at the central bank for clearing in the payments system and to exchange for vault cash to provide customer with the means to settle spot transaction that need no further clearing. Bank reserves in the payments system come into play after intra-bank and inter-bank clearing. Vault cash is counted as bank reserves for the purpose of the reserve requirement if imposed. Cash in circulation is not counted in bank reserves. The public does not hold bank reserves in any form. Cash is exchangeable for reserve balances at the central bank, which the public has no access to and where only member institutions are permitted to hold accounts.

Claiming that banks lend out reserves misconstrues the meaning of bank reserves. Bank reserves are liabilities of the cb and when the cb receives reserve balances from a member institution, it marks down its own liabilities. When the cb receives bank reserves in payment of taxes, it marks up the Treasury account by an equal amount.

In this way, a private deposit account is marked down and the spendable money supply (stock) called M1 is reduced. The credit to the Treasury account is not considered part of the spendable money supply until it is used in clearing when Treasury directs the cb to mark up a bank's reserve account, resulting in a credit to a customer's account, for example, a Social Security deposit. This increase in a demand deposit account results in an increase in M1 money supply.

Bank reserves, which are more accurately called settlement balances, never leave the the payments system run through the central bank's accounting system, other than bank reserves being exchanged for vault cash, which counts toward the bank's reserve balance. Vault cash loses this status when a customer withdraws cash.

This interview provides interesting insight into Libertarianism (right libertarianism) and Steele's version of center libertarianism that combines some aspects of left and right libertarianism with his own perspective in intelligence. He thinks that a libertarian coalition is possible, but that seems to be to be pie in the sky thinking. The fundamental principles are mutually exclusive.

However, his debate of sorts with Wile brings out a number of interesting aspects of libertarianism and how to address them with forward thinking.

Steele admits, "I am not an expert on money." He sure isn't. But he does have some useful ideas about open source and popular democracy, and he is clued in on power.

Warning: Heavy on conspiracy theory in places, which can be skipped without losing the thread.

See also Steele's Intelligence for the President–and Everyone Else, Counterpunch, 2009. His argument is that transparency and open source are more effective and efficient than secrecy and clandestine agencies. Two of my early mentors were of the same view. They agree that clandestine "intelligence" is chiefly about black ops rather than intelligence-gathering.

Barry C. Lynn is a senior fellow at the New America Foundation and the author of two important books, “End of the Line” and ”Cornered,” the latter of which describes the dramatic return of monopoly to the American landscape. Both books had a big effect on me when they appeared, as did Lynn’s periodic articles in Harper’s Magazine describing the concentration of economic power in all sorts of different industries. One of the reasons his books startled me is the weird silence of virtually all our other popular economic writers on the subject. Monopoly is back, in a massive way, and yet it seems as though even liberals often have trouble talking about it. If we’re really going to do something about inequality, however, it’s time we looked this thing in the face.

Barry Lynn and I sat down and talked it over last week. What follows is an edited transcript of our conversation.…

If you're confident enough in the resiliency of the US Middle Class, then it's time to start putting more thought into how we'll adapt to the accelerating changes facing us economically, militarily and ecologically. Are there only 2 paths to consider?

The fundamental assumption is that left to itself everything (all factors) adjust (in aggregate) in the long run although there may be short run disruptions in some markets. It is further assumed that the only way to facilitate the adjustment process is to reduce frictions, which it is assumed are due to government intrusion in markets. Shortages and gluts are only short terms problems that entrepreneurial ingenuity and creative destruction will work out along with market forces.

May make sense in the laboratory assuming a simple closed system and cet. par., but not so much in the real world where all things are not equal, especially over time, institutions dominate rather than individuals, the system is complex, the future uncertain, people are not always perfectly rational, and asymmetries of information and power skew markets.

Say's law should be called Say's gadget, which, like a Robinson Crusoe-Friday economy, might be useful in Econ 101, or not.

I don't think we should come down too hard on early economists though. After all, they were exploring the territory and carving out a new discipline. In this light their achievements are great even though they made some blunders.

What is disconcerting is that so many contemporary economists still can't figure it out after the mistakes have been pointed out, sometimes long previously, such as Marx and Keynes with Say. No, markets don't adjust at a full employment equilibrium in the long run, and now we know why based on monetary, institiutional and cognitive-behavioral economics, as well as the failures of equilibrium economics.

The book dates the choice of the purely deductive path to Lionel Robbins and his 1935 essay The Nature and Significance of Economic Science. He defined economics as the science of constrained choice, which, “Not only excludes uncertainty, but it also excludes from the scope of economics both institutions and the medium-term evolution of economic systems.” This isolates economics from the institutional framework of the economy, and hence from what determines the availability of resources over time – it makes economics an inherently static subject.

Natural scientists do regard economics as bizarrely non-empirical…

The Enlightened EconomistEconomists and humanityDiane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Is this our story of the last 70 years?
Too little feedback is gathered - or listened to - too late,
.. so what little we hear is mis-analyzed, too late, by too few Central Planners,
.... so our policy acts are too late, and mal-adaptive?

So what do WE the people DO about this state of the disunion?

Not enough voters are hearing that question, often enough.

Why is it so difficult to listen equally to all of us ..... all of the time?

We've trained most intelligent people to pursue small personal gains from systemic inefficiencies ... instead of just fixing them and benefitting indirectly from the awesome returns on coordination.

That is NOT how social species thrive. What we're doing now is a historical aberration. I sincerely hope we survive our present selves. Why even bother putting ourselves through this?

Politically, if not intellectually, the austerians have won. As Aditya says, both main parties are commited to "fiscal impossibilism". The IPPR's Condition of Britain report, for example, takes ongoing austerity for granted.

Sectoral balances.

To put this another way, think about financial balances. One aspect of euro stagnation would be that the region will continue to run a big current accountsurplus (pdf); this would be the counterpart of tight fiscal policy in the region, plus weak capital spending. If our biggest trading partner runs a current account surplus, we will probably have to continue to run a current account deficit. The counterpart to this is that some domestic sector must also run a deficit. But who? The OBR foresees companies continuing to run a surplus. This means that the government can return to balance if and only if households become huge net borrowers. But what if this doesn't happen - say because tighter macroprudential regulation prevents it or because households prefer to reduce debt? In this case, the government will have to run a deficit, possibly a big one. Attempts to bring even the current budget into balance would run into the paradox of thrift and simply depress demand.

Government as big household analogy.

It's not good enough to argue that counter-cyclical policy should be done by monetary policy alone. This might be tricky if we are at or near the zero bound - or at least, if MPs think large-scale quantitative easing is the best counter-cyclical policy they should say so, and explain why.

You might think the answer lies in the word "credibility". It does - but not in credibility with financial markets; the fact that long-term real yields are negative tells us that, for practical purposes, this exists. Instead, the two parties are competing for "credibility" with a media and public that has fallen for idiotarian talk that the public finances are the nation's credit card. And we get the governments we deserve.

Philosophers of economics get this. Keynes got it. Frank Knight got it. Post Keynesians and other heterodox economists get it. Other scientists get it. Financial professionals like George Soros get it.

But it escapes conventional economists. Econometric models fail exactly where they are needed most. This is like "follow the trend" trading approaches that work until the trend changes, as it inevitably does. This is not to say that "follow the trend" is wrong or useless. It's just not enough to be useful by itself. Formal modeling and heuristic gadgetry are useful in the study of economics, and are even necessary as tools of the trade, but they are not enough. What we are interested in is turning points and accounting for it based on "unforeseeable" external shocks is a cop-out, especially when others have foreseen reversal and warned about it.

Lars continues this train in taking Krugman's defense of gadget economics apart, pointing out that Krugman often comes to the right conclusions but provides no evidence that this was the direct outcome of using formal econometric models like DSGE or heuristic gadgets like IS-LM, or even what subsidiary role they played.

Lars: "I have noticed again and again, that on most macroeconomic policy issues I find myself in agreement with Krugman. To me that just shows that Krugman is right in spite of and not thanks to those neoclassical models — IS-LM included — he ultimately refers to. When he is discussing austerity measures, Ricardian equivalence or problems with the euro, he is actually not using those models, but rather (even) simpler and more adequate and relevant thought-constructions much more in the vein of Keynes.

Saturday, June 28, 2014

There is a version of economic historical thinking that we might label as "capitalist triumphalism" [aka market fundamentalism and economic liberalism] -- the idea that the institutions of a capitalist economy drive out all other economic forms, and that they tend towards an ever-more pure form of unconstrained market society. "Liberalization," deregulation, and reduction of social rights are seen as economically inevitable. On this view, the various ways in which some countries have tried to ameliorate the harsh consequences of unconstrained capitalism on the least well off in society are doomed -- the welfare state, social democracy, extensive labor rights, or universal basic income (link). Through a race to the bottom, any institutional reforms that impede the freedom and mobility of capital will be forced out by a combination of economic and political pressures.The graphs above demonstrate the current structural differences among Denmark, Sweden, Germany, Netherlands, and USA when it comes to training and income support for the unemployed and underemployed. It is visible that the four European economies devote substantially greater resources to support for the unemployed than the United States. And on the triumphalist view, the states demonstrating more generous benefits for the less-well-off will inevitably converge towards the profile represented by the fifth panel, the United States.…

Thelen's most recent book, Varieties of Liberalization and the New Politics of Social Solidarity addresses the question of capitalist triumphalism. (That isn't a term that she uses, but it seems descriptive.) She locates her analysis within the "varieties of capitalism" field of scholarship, which maintains that there is not a single pathway of development for capitalist systems. "Coordinated" capitalism and neoliberal capitalism represent two poles of the space considered by the VofC literature.

From the beginning, the VofC literature challenged the idea that contemporary market pressures would drive a convergence on a single best or most efficient model of capitalism. (kl 228)

Thelen is interested in assessing the prospects for what she calls "egalitarian" capitalism -- the variants of capitalist political economy that feature redistribution, social welfare, and significant policy support for the less-well-off. She focuses on several key institutions -- industrial relations, vocational education and training, and labor market institutions, and she argues that these are particularly central for the historical issue of the development of capitalism towards harsher or gentler versions.…

A key finding in Thelen's analysis is that "coordinated" capitalism and "egalitarian" capitalism are not the same. Coordinated capitalism corresponds to the models associated with social democracies of the 1950s and 1960s, the "Nordic" model. But Thelen holds that egalitarian capitalism can take more innovative and flexible forms and may be a more durable alternative to neoliberal capitalism.

Capitalism is commonly misunderstood as being an economic system. Rather, it is a complex web of institutional arrangements the foundations of which are legal, hence, political. Difference in institutional arrangements result in varieties of capitalism.

Power is the underlying factor and not "capital," whatever than is. Those who/ve been paying attention to the Piketty "capital controversy" know that the debate hinges on the meaning of capital. The controversy reveals there is sharp divergence of views over capital.

Irrespective of how capital is defined, there are varieties of socio-economic theory and ideology that underly different political systems as determined by their legal arrangements. These result in varieties of ownership, distribution, and other socio-economic categories and classes. The economics follows from the institutional arrangements and these are political choices that ayer determined by power relationships.

AEI’s Kevin Hassett knew Piketty was wrong before he ever read him. There is no possible world in which Kevin Hassett did anything else but say Piketty was wrong. That’s fine, but what’s not fine is this shit:

If you look at what’s been going on in his data, then the share of income going to capital in the United States has gone up over time. And what he does is he gives a theory for why that is going to continue. And eventually capital is going to have everything unless we have 80 percent tax rates and so on.

Friday, June 27, 2014

I posted a link to this through another link at Unlearning Economics blog when it appeared. I am posting a direct link now as weekend reading for those who may have missed it. It is the best short critique of criticisms of Piketty's notion of capital that I have run across. This is good opportunity to catch up with some the most salient points in summary form, especially if you haven't been following the new "Capital controversy" closely.

At its June 20-23, 2014 annual meeting, the US Conference of Mayors (USCM) adopted a pair of resolutions endorsing postal banking, co-signed by eight mayors from six states. Their goal is to bring $1 trillion of job-creating economic stimulus primarily to low-income neighborhoods, over the next decade, at zero cost to taxpayers.…

Linux, the most widely used open source operating system in the world, has scored a major publicity coup in the revelation that it is used on 94% of the world’s top 500 supercomputers.

Every operating system has technical issues and Linux has not been faultless. But some key technological milestones have been passed in recent years that have made it possible for Linux to quietly assert dominance in the fight for popularity and custom.

Apart from the fact that it is free and has been since its creation in 1991 by Linus Torvalds, Linux has many technological advantages that mean other operating systems just can’t beat it.

As the W/Ynet ratio rises the net rate of profit is likely to fall, and so it is highly unreasonable to imagine that the net savings rate out of income snet will not fall rapidly and substantially and so greatly attenuate any rise in W/Ynet. Thus substantially rising W/Y is not a problem that we should expect to see.

Should the W/Ynet ratio rise substantially, the net rate of profit is likely to fall, and so the share of income earned from wealth will rise only slightly–and may not rise at all. This is not a problem: this is wealthholders providing workers with lots of capital services at a cut-rate price. Thus rising W/Y is likely to rather than lowers working-class incomes and is unlikely to worsen the income distribution, and so the prospect is not a problem.

Even should the W/Ynet ratio rise substantially and even should the net rate of profit not fall, wealth is unlikely to become or remain highly concentrated. A high W/Y and a high r x W/Y is a big problem only if wealth becomes and remains highly concentrated, and that we are unlikely to see.

Even should the W/Ynet ratio rise substantially and even should the net rate of profit not fall and even should wealth become and remain highly concentrated, plutocrats are highly likely to get into status games of spend-my-money-to-change-the-world, and so we are unlikely not have a world in which heirs and heiresses exercise undo influence over our priorities. Even should the distribution of wealth and of income become markedly more unequal, it is unlikely to distort society’s choices and lead to a grossly unequal distribution of utility.

I figure each of these has about a 20% chance of coming true, and thus that Piketty’s scenario is a (slightly) less than 50-50 shot, even with policy and politics on autopilot….

Pew Research Center has released a massive study detailing the American public's deep-seated political divisions, analyzing not just the ideological disunity between the left and right wings but also the issues dividing the large political center.

Rather than just defining voters as liberal or conservative, the study breaks up voters into groups "based on their attitudes and values." Liberals, for example, could be "next generation left" or "solid liberals," while voters on the right are broken down as "steadfast conservatives," "business conservatives," or "young outsiders."

Among the survey's most striking findings is that about 80 percent of conservatives agree that "poor people have it easy because they can get government benefits without doing anything." Meanwhile, over half of conservatives believe that an individual's poverty is based on "lack of effort on his or her part," rather than circumstances beyond their control:...

The survey found similar divisions over whether government programs help or harm society. More than 80 percent of conservatives in all three groups agreed that "government aid to the poor does more harm than good, by making people too dependent on government assistance," while a majority of left-leaning respondents said the government does more good because "people can't get out of poverty until their basic needs are met."

The idea of capitalism as an expression of economic freedom that also secures moral and political freedom of thought, or the notion that "free-market" economies are guided by an impartial mechanism of supply and demand - an "invisible hand" to use Adam Smith's metaphor - are both powerful indoctrinating notions. As such, they bear little resemblance to actual reality. Smith himself never used the word "capitalism," preferring to call his economics a "system of natural liberty." In fact, the inner logic of capitalism can be difficult to get hold of simply because there have been different configurations of capitalism throughout history. In its classic form, before the advent of corporations (when there was still an implicit sense of social responsibility, and insatiable greed was considered a vice), capitalism might have appeared less virulent. Additionally, there is reason to believe that capitalism unfolded differently in different countries with distinct political and legal frameworks.

All of these contingent factors are worthy of consideration in any assessment of capitalism. However, it is also reasonably clear that once we actually look at history, it is difficult not to conclude that pretty much every embodiment of capitalism - classical capitalism, oligarchic or corporate capitalism, casino capitalism, entrepreneurial capitalism - presuppose similar elements: private property, ownership of the means of production, notions of unlimited growth, the maximization of profit, using wealth to create wealth. They also all embody a form of instrumental rationality, the kind of rationality concerned with maximizing profits and minimizing costs. In its globalized corporate form, capitalism has been able to relentlessly realize this form of instrumental reasoning on a large scale - and thereby show itself as one of the most destructive and undemocratic economic system humans have ever come up with.Unfortunately, neither propaganda nor abstract economic theory can help us to grasp this fact. The reason is primarily that the latter do not really speak to the false theories of human nature capitalism presupposes. Nor do many of them elaborate capitalism's legitimating normative-moral or political origins. Most crucially, they are often silent regarding the devastating impact that it has had on the environment since it first emerged during the course of the eighteenth and nineteenth centuries. As Chomsky insightfully puts it, "There is "capitalism" and then there is "really existing capitalism." What then is "really existing capitalism'?

Capitalism and democracy are antithetical.

If I am right that the inner logic of capitalism inevitably leads to a hegemonic, macro-structural world-system of unequal human social, political and economic relations guided by elite greed that does not reflect the best interests of the majority of people, the common good or indeed the good of the planet itself, then Piketty's assumption that we could ever regain control over an "endless inegalitarian spiral' by imposing a progressive tax on capital seems, is at best, rather fanciful. A more fitting conclusion in the aftermath of the 2008 financial crisis and the efforts of the elite to profit from the latter would be to ask the question whether we should continue advocating for a capitalist system that glorifies profit over people or start thinking about how to reorganize our economy around common goods such as the health and well-being of our present world.

Doh.

Instead, many contemporary economists repeatedly tell us that our only tenable alternative is to tame capitalist excess through regulative initiatives. This has been done before and it can be done again, the argument goes. Thus, it is claimed that we can and did rein-in or mitigate the severity of capitalist exploitation, and the massive wealth and income disparities that followed from it. However, it should now be abundantly clear that the internal and structural logic of exploitation, wealth-income disparities and the profit-oriented colonization of social and political relations can only be regulated for short periods. It can never be fundamentally altered.

Under capitalism, they'll always be back.

This is a fairly long and detailed article that is well worth the read. It debunks a lot of pervasive myths that have landed us in the mess we are in now with a seriously fouled nest, for example, and seemingly endless resource wars.

That is how financial markets work. They are not price versus quantity markets. Rather they are price versus perceived risk markets. And this ties back into Keynes’ theory of financial markets. To put it very briefly: if people are highly confident in the financial markets and there is a fixed amount of money in those markets the velocity of the money in the financial markets can speed up to accommodate any increase in the flow of borrowing. This is actually very obvious but mainstreamers don’t dig very deep into these things generally.

This blog post is long enough but I have fully formalised Keynes’ theory in the book that I am nearly finished writing. I think that this is the first time it has been done. Since I have given more than enough content away on this blog for free you will have to wait until it comes out, buy it and then you can get a better grasp on Keynes’ theory; the only theory that really fits with the historical record in this regard.

It seems to me that Rowthorn is closing in on the nodal point in Piketty’s picture of the long-term trends in income distribution in advanced economies. As I wrote the other day:

Being able to show that you can get the Piketty results using one or another of the available standard neoclassical growth models is of course — from a realist point of view — of limited value. As usual — the really interesting thing is how in accord with reality are the assumptions you make and the numerical values you put into the model specification.

NEW YORK (AP) - A Chinese tycoon served up a fancy lunch Wednesday to homeless New Yorkers at a Central Park restaurant, but caught grief from attendees expecting cash.

Recycling magnate Chen Guangbiao selected a menu of sesame-seed-encrusted tuna, beef filet and berries with creme fraiche at The Loeb Boathouse restaurant for more than 200 residents of the New York City Rescue Mission, the nation's oldest shelter.

He even serenaded them with a rendition of "We Are the World" and did some magic tricks.
Dozens of volunteer waiters sported green uniforms similar to those once worn by soldiers in China's People's Liberation Army, bearing the words "Serve the People."

"I'm looking forward to a good time and a good meal," said Antone Hills, a shelter resident. "I think he's a good guy and he's helping our country."

Wads of cash filled wire baskets at the restaurant, with Chen waving some of the money in front of the guests.

But when they discovered that they in fact would not be given any money, an uproar ensued, with some yelling, "We want it now!"

Shelter officials urged Chen not to give cash to the group because many are being treated for addictions and the money could be better used for their programs

What a disgrace!

And then the right libertarians are all over this like "I told you so...." with Ingaham tweeting this:

Wednesday, June 25, 2014

In an earlier article, I described a simple "endowment" model economy which was based on it working paper by John Cochrane. In that article, prices were extremely flexible, and the only means to pin down the initial price level is via the governmental budget constraint, which is a concept referred to as the Fiscal Theory of the Price Level. In this article, I explain the concept of monetary frictions, which creates an independent means of determining the initial price level. Once these frictions are introduced, the validity of the government budget constraint is more problematic.

What Is The Objective Of This Article?

This article and other related ones represents a first draft of ideas that I am going to incorporate into a book on the theory of fiscal policy. I have strong objections to the representation of fiscal policy within Dynamic Stochastic General Equilibrium (DSGE) models. In this article and the previous I present a simplified DSGE model and how it is supposed to be analysed. One difficulty in following the logic is that the model is very unrealistic, which is an inherent property of these models.

Once I have covered the base ideas, I will be easier to explain my criticisms.

To make it easier for readers to wrestle with these questions, we have created a repository of the most significant commentary on the Piketty thesis, below. We will continue to update this collection until the conversation is exhausted (which may take many years). We expect many arguments, new investigations into the data, and challenges to economic theory. In particular, Piketty argues only higher taxes are the answer to capital accumulation. Many progressive economists take exception to this. Keep track of the debate here and feel free to discuss in the comments section.

The editorial content of their Finance channel has gone right down the toilet to the point where we are being told that reduction of liberal education for our young people is "a good thing", which has never been true and never will be.

Other than this it continues to trot out every kind of gold bug, libertarian, debt doomsday, sub-human hominid they can get to show up at their studios.

Wolf’s proposals are radical, and would give a small committee – independent of the state – a monopoly on money creation. His ideas are based on the Chicago Plan, advanced among others by Irving Fisher in the 1930s, and shared today by the UK NGO, Positive Money. They agree that all ‘decisions on money creation would … be taken by a committee independent of government’.

Furthermore, Wolf argues, private commercial banks would only be allowed to:‘…loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries thatmany wrongly believe they now are.’

Because I am a vocal critic of the private finance sector, many assume that I would agree with Wolf and Positive Money on nationalising money creation. Not so.

I have no objection to the nationalisation of banks. But nationalising banks is a different proposition from nationalising (and centralising) money creation in the hands of a small ‘independent committee’. Indeed, the notion to my mind is preposterous. It is an approach reminiscent of the misguided and failed monetarist policy prescriptions for controlling the money supply in the 1980s.

… marginal product accounting, when consistent, is useful for deciding how to use additional resources… but it does not “show” which resource has “produced” how much…. The alleged fact is, thus, a fiction, and while it might appear to be a convenient fiction, it is more convenient for some than for others….

“Where does money come from?” That’s our question. That’s the trump card Deficit Owls play to explain why the case for austerity is shallow and sadomasochistic, now and forever. When one spreads the true answer—that the Federal Reserve creates dollars with keystrokes, that the U.S. government, unlike like a state or a household, can’t possibly “go broke”, that Uncle Sam has to worry about inflation but doesn’t need to tax or borrow to spend—policy creativity explodes. The false choices of public finance are illuminated. We can decrease taxes AND increase expenditures. We can achieve full employment AND price stability at the same time. Once we align conversation with operational reality, and recognize that we can’t collectively run out of money, we can have an honest—if always antagonistic—conversation about what institutions should do to create, administer, and regulate stocks and flows of resources.

That’s the plan, at least.

But there is, of course, another dimensions to all of this: legality. Descriptions of how money flows through the economy are inseparable from questions about the flux of claims of ownership. These complementary inquiries are deeply moral at their core, causing visceral reactions, as they pressure people to consider what they think is a truly fair social order, severed from unnecessary worries about the federal budget. Because these questions are conflict-ridden, they are the province of the legal field, of lawyers, lawmakers, regulators, and judges, who hammer out the statutes, cases, and codes that undergird commercial activity.

Personal hoarding of a hill of beans? All that ever produces is more old farts, plus grandchildren guaranteed to be neglected in diverse ways. Working harder to guide aggregate options by way of limited, personal perceptions just won't work, no matter HOW HARD our 1% Central Planners try to think for us, instead of with us. At our present rate, we might as well beat our collective heads against a wall, in unison. Democracy is simple. Just LISTEN, all the time, to all of us. If that keeps getting more difficult, then develop the needed methods, instead of bickering about old methods that can't scale to present needs and opportunities.

Ironically, the only - widely accepted - formal methodology that comes close to addressing our primary need is the science of military mobilization, which is itself still far off the needed mark needed for our national agenda, and is mostly misused by clueless electorates & policymakers. Luckily, that whole approach seems to be slowly transitioning back towards a timeless, OpenSource science of "outcomes based training & education" or OBT&E.

Again, don't hold your breath waiting. Better get around to considering more options than listening to the Luddite-in-Chief.

Alternatively, maybe we will revert to a Planet of the Apes, populated by FiatDeficitRangers keeping a lid on human fiat. We could achieve a Planet of the Luddites, where every nation's Public Initiative is a flat line, i.e., "balanced."

Who's telling Main Street that the financial industry was among the likely ... initiators ... of a major attack on the Middle Class?

$1 million/month? Is he joining a crowded field of .... White Collar Criminals ... or just demonstrating that the MICC can co-opt Wall St. any time it wants to?

After all, he and the NSA must have information that most tycoons ... shall we say, 'don't want brought to light' any time soon?

If he's that good, why doesn't he just go to work for Google, IBM, Yahoo, or other existing IT industry titans? Move over good dogs, a mean old dog's moving in?

And the touted threat? Rerouting data that might be used to make money in rogue stock-market transactions? I thought that's what Wall St. DID with Main St.'s financial resources? Translation: Banksters want to retain that business for themselves, and the NSA can show them how? [For a hefty piece of the action.]

Two decades after gutting every financial regulatory agency, from CFTC to the FBI White Collar Crime Task Force and on to the SEC itself - not to mention gutting Glass-Steagall - we now need more people in select regulatory positions? No one could have predicted this, right?

Banks that not long ago had 10 or 15 people repelling computer invaders now have 50 to 100 people “that do nothing but respond to attacks and review intelligence,” Joe Nocera, head of the financial-services cybersecurity group at PriceWaterhouseCoopers LLP, said in an interview.

The largest banks are allocating the most resources. JPMorgan Chase & Co. (JPM) has 1,000 people focused on the danger and will spend $250 million this year, Chief Executive Officer Jamie Dimon said in an April letter to shareholders.

And it only gets more unbelievable.

“I don’t want to be Chicken Little and say the sky is falling,”Benjamin Lawsky, superintendent of New York’s department of financial services, said in an interview. “But we really need to focus on this issue.”

And, says a clueless Congressperson:

“What I’m concerned about is we’re going to have a 9/11 in cyberspace,” he said. “We don’t need to suffer this kind of attack.”

Really? Sort of like the ones that Edward Snowden revealed? And, what about the massive policyspace attack that ALREADY OCCURRED, and hit the Middle Class on Main Street? Apparently that segment of our nation isn't as important to these so-called public servants?

ps: watch to see which banks (domestic or foreign) are able or allowed to hire this particular "protection" service, and what accessory "services" follow soon after. Sadly, since we the people are "running out of fiat," the Middle Class will never again be able to afford similar protection .... from it's own leaders - unless we da peeps make some fundamental changes in national governance.

Once upon a time, when I was young, there was a two-tiered system in the US, with expensive private colleges and universities for those who could afford them and nearly-free public education for everyone else. Then decisions were made. The US has a mostly decentralized structure in which the provision and financing of public higher education occurs at the state level, but somehow, miraculously, every state in the union simultaneously began a process of shifting costs from taxpayers to students and their families.

I would dearly like to know who made these decisions and how they were disseminated to all the state-level boards, commissions and legislatures. Here’s my uninformed speculation on why this happened:

Modern Money Theory (MMT) seems to confuse two groups of otherwise sympathetic economists. First there are those like Paul Krugman who are generally of the Keynesian persuasion and who like MMT’s “deficit owl” approach. I think Krugman would really like to stop worrying about the deficit so that he could advocate an “as much as it takes” approach to government spending. The problem is that he just cannot quite get a handle on the monetary operations that are required. Won’t government run out? What, is government going to create money “out of thin air”? Where will all the money come from?

He really doesn’t understand that “money” is key stroke records of debits and credits. He still thinks banks take in deposits and then lend them out. He starts to tear his hair out whenever someone tries to correct him on this. He’s wedded to the deposit multiplier idea he got from his Econ 101 textbook.

The other group that is otherwise sympathetic is the Post Keynesians. They understand banking. They know that “loans create deposits”. They know the “deposit multiplier” is actually a “divisor”, as “deposits create reserves”. (Not in any metaphysical sense but rather in the sense that an interest rate-targeting central bank always accommodates the demand for reserves.) However, they cannot understand how a sovereign government spends. Doesn’t it have to borrow the currency from private banks? Like Krugman, they argue that (given modern arrangements), government cannot spend by “keystrokes”.So here’s an attempt to put the fears of Krugman and Post Keynesians to rest. There is a symmetry between bank lending and government spending.

Thomas Piketty’s “Capital in the 21st Century” is clear from the beginning: housing and real estate generally ought to be included in the definition of “capital” for the book’s purpose, since the point is to examine the aggregate effect of accumulated wealth that produces an annual return through no effort on the part of its owner. A whole set of Piketty “rebuttals” attacks that treatment.

Lawrence Summers claims that housing price dynamics—namely, the housing bubble and eventual firesale in the 2000s—are driven by supply restrictions and inelastic demand, not capital accumulation.

Kevin Hassett at the American Enterprise Institute says that since you can’t replace workers by houses in production, workers aren’t threatened by the wealth accumulation Piketty emphasizes, since that wealth is attributable in large part to housing.

A group of economists at the Institute for Political Studies in Paris points out that a large portion of the increase in the value of capital—and in France, all of it—is due to housing appreciation, which they argue is sensitive to the decision to value it using market prices rather than the market rental stream. That critique was trumpeted by Tyler Cowen and Veronique de Rugy, and then enlarged upon in a more recent paper by Matt Rognlie, an economist at the Massachusetts Institute of Technology.

My recent column shows why those attacks fail, and why they reflect a larger reluctance on the part of macroeconomic theorists to confront the empirical failings of their received wisdom. Economists have developed a relatively sophisticated understanding of how the value of housing is determined, including by politics. “Capital in the 21st Century” doesn’t explore all of those findings, but they are nonetheless consistent with the book’s main arguments.In short, the housing-based critique of Piketty’s book is not what its proponents have been desperately looking for—an excuse to throw Piketty’s data, theory, and predictions away.

Why is it that group intelligence always seems to recede just before devastating changes in group context? Ordinary humans are clearly talented enough to devise many practical applications for exploring perceived options. There are countless examples, from sublime to mundane, such as this one.

Do we have to practice austerity, or can we achieve everything we can imagine, and more?

Application of our talents is clearly gated by the process of recognizing and orienting to local, regional or systemic context. Perceptions & practice then drive us to optimize an increasingly complex combination of actions, so that we can all sail through that thicket of micro-to-macro contexts. Social species work exactly BECAUSE recombinant member interactions provide compounding group resiliency.

Please ask every talented person you know, to design some Automatic Stabilizer policies, for a struggling and starving Middle Class.

We are what we practice, even at a cultural scale. So what triggers do we need, to get more of ourselves to perceive our own, constrained, self-handicapped electorate?

Too few seem to see a MiddleClass limping down the road to oblivion, right into the path of another set of predatory sociopaths, whether "Brits" in India, or an Upper Looting Class that eventually self organizes everywhere.

To avoid these self-inflicted constraints, we need an electorate that practices simultaneously perceiving the full spectrum individual needs, AND team dynamics, AND social interdependencies. To maintain Adaptive Rate, a working culture has to juggle all available input, and keep all it's increasing options available.

What aspect of SCALE don't we teach enough kids, in all schools, everywhere?

Instead of hoarding static assets as rent, why aren't we seeing the value of employing everyone to explore our full range of cultural options, so that we can practice achieving even more than what any individual can currently imagine?

Join a citizen's army? Be all that, together, "we" can be?

Support cultural intelligence? A group mind is a terrible thing to waste?

Why don't more emerging students grasp the scale of the group options to be explored? What methods do we need, in order to change our re-emerging electorate back towards a more adaptive path?

We can't get there by having everyone wishing to hoard above average amounts of static assets. The reality of the boring outcome actually achieved from that dream has repeatedly been trivial compared to increasing our dynamic assets, an alternate outcome which is available to any organized aggregate - but only if they first recognize it.

A new report, published on Tuesday, represents an attempt to change that. It’s called “Risky Business” and it comes from a year-long research project, convened and financed by Michael Bloomberg, Hank Paulson, and Tom Steyer. It’s the latest in a series of new reports that sound alarms about climate change: the health effects, glaciers melting, and impact on food nutrition, to name a few. But the researchers and scientists who produced Risky Business are trying to do something a little different. Using new, more sophisticated projections, they have broken down the U.S. into the same regions used in the National Climate Assessment and attempted to show what climate change will mean for each one. They are also trying to put a dollar value on the risk climate change represents in these regions, particularly for businesses.

That last part is important. The primary audience for the report isn’t really Main Street. It’s Wall Street—and corporate boardrooms. The backers include a number of people with credibility in this world—not just Paulson, who used to run Goldman Sachs and served as Treausry Secretary in the Bush Administration, but also George Shultz (Treasury Secretary under George H.W. Bush) and Olympia Snowe (the former Republican senator). Paulson, who has apparently been particularly active in this project, argued in a weekend New York Times op-ed that “risk management is a conservative principle.”

WikiLeaks last week again pierced the veil of official secrecy that surrounds global trade negotiations. The peek it gave us should alarm everyone.

Big Business and national governments wanted to conceal the terms of the proposed Trade in Services Agreement (TISA) while keeping consumers, unions, environmentalists and the vast majority of businesses in the dark. Thanks to WikiLeaks, they failed.

The draft agreement WikiLeaks released on June 19 is fresh, written in May. It is a model of secret law, blatant in its disregard for transparency, democratic process and history. Its opening page says the terms are to remain secret for five years after negotiations formally end or the proposed new rules take effect. Talks to refine that agreement were to resume Monday in Geneva.

Even the secrecy-shrouded Trans Pacific Partnership that President Barack Obama and his Big Business allies want to ram through Congress without changes and only perfunctory debate does not include a five-year veil of secrecy after adoption. WikiLeaks has released a portion of TPP draft documents to the public.

It is impossible to obey a law or know how it affects you when the law is secret. And that is what this agreement would be, a new rulebook for trade in services — principally banking, insurance and trusts.

The 18-page draft agreement involves 50 nations, which produce more than two-thirds of officially measured global economic activity. That means the consequences of the new rules would be enormous, especially for those living in the more than 140 countries not taking part in the talks. Whether people can get loans or buy insurance and at what prices as well as what jobs may be available will be affected by any new trade rules.